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Dealing with the late payment

manstandingonmoney32149463.jpgLate payments from your customers can ruin your company. When you offer payment terms to customers, you are basically offering them a line of credit from your company. When you are borrowing money from your cash reserves to pay for products that your customers have purchased, it freezes your cash flow. You won't have the money you need to pay for your raw goods and other costs.

The problem many businesses face is that they simply don't know how to collect money from their customers. They don't really enforce the payments and they don't actually try to resolve payment issues. This increases the possibility that you will continue to have customers that may late payments.

Create an invoicing guide for your business. You do have the legal ability to charge interest to your customers that are late payment customers. You have the option to exercise the interest rates at any time, using your discretion.

As you are focusing on setting up a late payment invoicing guide, you need to consider when a payment will become late. Most companies provide a 30 day window from the time of purchase. This is a fair practice as it will give your customers enough time to collect the money they need to make their payments in a timely manner. One way to figure out what is fair to look at what is being done in y our industry. What do your competitors offer? If they are offering credit terms of 45-60 days, you might want to consider revamping yours because it could cause you to lose customers. Legally, the late period date is 30 days after the purchase of the product or date in which the goods are delivered.

Always get your payment amounts in writing. If you meet with a customer and you verbally agree to something, you need to be sure and write it down. Verbal agreements can get tricky and can ruin relationships in a hurry.

A great practice you have is to start asking your customers for a down payment when they purchase your products. Ask customers for a 10-20 percent down payment as this can help you cover some of the production costs so you aren't dipping into your cash reserves to try and pay for your customers orders.

Another option you need to consider is the amount of interest you plan to charge and when you want to start charging interest on late payments. You should charge interest on the late payment after 30 days because it will motivate customers to pay their bills faster. People hate to may more money than the initial invoice so by charging them interest; they will try and pay faster so they aren't paying more than they feel they deserve to pay.

When you are trying to figure out when and if to charge interest, here are some things you need to consider:

  • What is the relationship like with your customers; do you feel that you would damage relationships with them if you started charging interest?

  • Talk to your staff and get their opinion about charging interest. Since your staff deals with the customers on a daily basis, they know more about the needs of the customers and if charging interest will cause them to look for another company to work with.

You need to make sure you amend your invoices to include the interest amount on the invoices to protect your company from liability. Before you start implementing the new invoicing rules, you need to send out a notification to your customers in order to make sure they understand the new terms.

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